On Feb 28, we reaffirmed our long-term Neutral recommendation
EOG Resources Inc.
) − a major independent oil and gas exploration and production
(E&P) company. The reiteration was based on an attractive
growth profile, solid execution in key growth assets, in
particular the Eagle Ford and Bakken plays as well as growing
emphasis on liquids-oriented production that were somewhat
tempered by a weaker natural gas price.
Why the Reiteration?
EOG Resources reported solid fourth quarter and full-year 2012
financial results on Feb 13. The strength in adjusted results
were attributed to a striking improvement at its high margin
organic crude oil production. Quarterly adjusted earnings of
$1.61 per share exceeded the Zacks Consensus Estimate by 17.5%
and were 40% higher than the year-ago adjusted earnings level.
EOG Resources' key growth assets continue to show strength. The
company's Eagle Ford resource potential increased by 600 million
barrels of oil equivalent (MMBoe) to 2.2 billion barrels of oil
equivalent (BBoe) based on continued production improvements and
successful downspacing pilots. Owing to downspacing, EOG
Resources has approximately 4,900 Eagle Ford drilling locations.
This reflects enough drilling inventory for more than a decade.
Again, the company is busy expanding its liquid rich production
level. Although it expects to cut North American gas volumes by
15%, total liquid production is likely to surge 23% in 2013. The
primary driver will likely be production in Eagle Ford, Barnett
EOG Resources expects its production from crude oil to grow 28%
for 2013, reflecting the third successive year of significant
double-digit increase in volumes. It is again supported by strong
natural gas liquids growth of 23%. Although projected natural gas
declines will impact overall production, the boost in higher
margin products are expected to drive the underlying cash flow.
Although we view EOG Resources as a favorable pick, the
risk-reward pay-off for the company is still uncertain in the
near future due to its natural gas weighted production. Unless
the outlook for natural gas prices improves, we expect the stock
to perform in line with the market as well as the sector in the
Over the last 30 days for the first quarter of 2013, the Zacks
Consensus Estimate has gone down by 13.8% from $1.30 to $1.12 per
share. The Zacks Consensus Estimate for the first quarter
reflects a year-over-year decrease of 3.9%. For full-year 2013,
the Zacks Consensus Estimate is $5.88 per share, reflecting a
year-over-year increase of 3.7%. Over the last 30 days, the Zacks
Consensus Estimate for 2013 moved south by 5.8% from $6.24 per
Other Stocks to Consider
Currently, the shares of EOG Resources retain a Zacks Rank #3
However, there are certain other E&P companies like
Range Resources Corporation
EPL Oil & Gas, Inc.
Linn Co, LLC
) that offer value and are worth buying now. The companies carry
a Zacks Rank #1 (Strong Buy).
EOG RES INC (EOG): Free Stock Analysis Report
EPL OIL&GAS INC (EPL): Free Stock Analysis
LINN CO LLC (LNCO): Free Stock Analysis
RANGE RESOURCES (RRC): Free Stock Analysis
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